Trump’s Trade and Infrastructure Weaknesses

Today the Financial Times reports that American expatriats living abroad will have to pay higher taxes on any holdings in foreign businesses.

This is due to the hasty provisions Republicans put into their tax law to get mega-corportions like Apple and Google to bring back profits earned abroad to the United States.

But will those repatriation provisions to get US corporations to bring home more foreign earnings even work to create more jobs for Americans?”

The answer is “No!”

Why?

The Sorry State of U.S. Manufacturing

In my 2016 post, The Emperor Has No Clothes, I wrote about the fact that 25 US companies controlled more than half of all corporate cash while “99 percent of US companies were drowning in debt”. Now, Gillian Tett of the Financial Times wrote “The corporate debt problem refuses to recede.”

Rana Foroohar of the Financial Times wrote last week that US factories on average are twenty-five years old. Pieces of machinery are nine years old. The McKinsey Global Institute report estimates US corporations will need $115 billion dollars a year to overcome that deficit.

Nevertheless, corporate officials of the biggest US companies have said publicly and privately that any money repatriated to them by the new Republican tax bill will be used to buy back shares and pay out dividends to stockholders.

One cause of corporate reluctance to invest is U.S. government fiscal policy. According to Rana, there are “no quid pro quos of repatriation in exchange for equipment, investment, training, or the funding of an infrastructure bank.”

Right now the supposed fountain of abundance from “supply-side economics”, a.k.a. “trickle-down economics” is stuck at the stockholder level.

We all know that the President wants to create lots of new jobs by having corporations and the states pay for infrastructure. He claims that new construction projects will fund new jobs in manufacturing.

But as usual, Trump, and his Congress, aren’t willing to shell out any federal funds to make that really happen. Trump is now offering 200 billion dollars out of the 1.5 trillion dollars needed.

States, still reeling from cuts to healthcare and the new tax laws, and corporations are supposed to make up the 1.4 trillion 800 billion shortfall.

As a result, stockholders have been looking down a rabbit hole last week as a global bond sell-off is pushing stock prices over cliffs towards the rocks below.

Smart investors know that President Trump’s threats as well as his promises are empty.

Our would-be emperor has no carrots to offer corporations—only the largest companies can afford to offer up small tokens of appreciation for the tax breaks they’ve been showered with.

Olmec emperor

Meanwhile “the vast majority of the 250,00 manufacturing groups in the US employ fewer than 100 people.” They don’t sell abroad, and they are starving for capital.

So why is that? What don’t smaller-sized companies have money to invest in new plants and jobs?

According to the McKinsey Global Institute on the state of US manufacturing, “only 1 percent of US companies export.”

The Sorry State of US Trade

The corporate 1 percent are the global giants the President has been targeting in hopes of creating more jobs in the US. Instead, he should be targeting the smaller companies that sell here in this country and that would like to expand, but lack the capital to do so.

President Obama was well aware of this problem with US exports. He discussed it frequently during his last term. Obviously his efforts to solve it did not get far enough. Now we have a President who’s making things worse by pulling the US out of global trade agreements while levying tariffs on imports of foreign-made goods.

The rest of the world will be able to continue to buy from non-US corporations. Meanwhile, withouf foreign competitors, US corporations will take every opportunity to raise the prices of goods made and sold in the USA. That means U.S. consumers will not get less-expensive goods we now see everywhere in stores.

Because of Trump’s highly targeted import tax increases ranging from twenty to fifty percent on specific foreign competitor’s products, such as solar energy panels and washing machines, investors fear that US prices will go up—even if the Fed does not soon increase interest rates.

Price increases in the US won’t occur because of small bonuses being paid to workers at the mega-corporate level or small taxpayer breaks. Those are true wealth created by short-term demand for more goods on the part of wage earners. This kind of demand can be met by increased supply in in the short-run.

The real reason for price increases in US will be the rising concentration of wealth at the vey top of the income scale. Wealth inequality is taking place through wealth redistribution via tax cuts to the richest Americans and because real wealth is no longer measured solely in terms of “things”. Instead, we are now entering the “era of bitcoin”…

Why Wealth Inequality is Rising

While American workers are encouraged to focus on buying things in order to feel prosperous, the true growth of wealth in this country is founded on acquiring non-tangible, i.e. “un-human-touchable” assets. These kinds of assets are called “intellectual property”.

Intellectual property includes virtual things such as brand names for companies, rights to Internet and other communications modes, copyrights, trademarks, and patents.

In terms of manufacturing of goods, intellectual property includes the skills of labor, whether that labor is provided by human beings or by automated equipment we now call “robotic devices”.

Meanwhile, at the bottom, legal contracts often include intellectual property rights and even human rights that employees must give up in order to get a job.

In other words, the rapidly-growing value that the immense services sector as well as our significantly tinier manufacturing sector are accumulating, consists of intangible wealth—which stays in the hands of those few at the top of the money market (i.e. money-market makers; corporate officers; bankers; brokerage companies; and investors). From their pockets, intangible wealth does not “trickle-down” to most of those of us in the labor market.

As far as investors go, ninety percent of the US stock market buyers and sellers are institutional investors, e.g.governments, corporations, non-profit organizations, and foreign government sovereign wealth funds.

Only ten percent of stock market investors are individuals.

Nevertheless, our President is hell-bent on spending trillions of our tax money on building both tangible and intangible walls to keep Americans here and abroad trapped in a downwards spiral into poverty—by isolating us and making other countries go elsewhere rather than buy the fruits of our labor…

Meanwhile our Secretary of the Treasury cackles with delight that the falling value of our US dollar means US exports will sell better. Hooray for Apple! Hooray for Google! Too bad for small US corporations! Too bad for US consumers and workers!